NOTE 1: ACCOUNTING PRINCIPLES AND PRACTICES

The accompanying unaudited condensed consolidated financial statements (“financial statements”) are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited financial statements reflect all adjustments, which in the opinion of management are necessary to fairly state the financial position, results of operations and cash flows for the interim periods presented. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 25, 2009. The same accounting policies are followed for preparing quarterly and annual financial information.

Operating results for the twenty-six weeks ended June 25, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010. Additionally, our 2010 fiscal year ending December 31, 2010, will include 53 weeks, with the 53rd week falling in our fourth fiscal quarter.

Reclassifications

Certain amounts in the financial statements for the twenty-six weeks ended June 26, 2009 have been reclassified to conform to the 2010 presentation. These reclassifications had no effect on the operating results of either period.

Subsequent events

We evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the day these financial statements were issued.

NOTE 2: FAIR VALUE MEASUREMENT

The carrying value of our cash and cash equivalents, restricted cash, and accounts receivable approximates fair value due to their short term nature.

Our cash equivalents are classified within Level 1 of the fair value hierarchy. As of June 25, 2010 and December 25, 2009, our Level 1 cash equivalents consisted of money market accounts totaling $101.8 million and $61.7 million, respectively, and were recorded as Cash and cash equivalents in our Condensed Consolidated Balance Sheets. We had no Level 2 or Level 3 investments as of June 25, 2010 or December 25, 2009.

NOTE 3: RESTRICTED CASH

Restricted cash consists primarily of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash-backed instruments. The majority of our collateral is held by Chartis, a subsidiary of American International Group, Inc.

The following is a summary of restricted cash (in millions):

NOTE 4: PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost and consist of the following (in millions):

Construction in progress consists primarily of internally developed software. As of June 25, 2010 and December 25, 2009, capitalized software costs, net of accumulated amortization, were $33.5 million and $35.7 million, respectively, excluding amounts in Construction in progress.

Depreciation and amortization of Property and equipment totaled $3.2 million and $3.5 million for the thirteen weeks ended June 25, 2010 and June 26, 2009, respectively. Depreciation and amortization of Property and equipment totaled $6.6 million and $6.9 million for the twenty-six weeks ended June 25, 2010 and June 26, 2009, respectively.

NOTE 5: INTANGIBLE ASSETS

The following table presents our purchased intangible assets other than Goodwill (in millions):

Total amortization expense was $0.7 million and $0.8 million for the thirteen weeks ended June 25, 2010 and June 26, 2009, respectively. Amortization expense was $1.4 million and $1.5 million for the twenty-six weeks ended June 25, 2010 and June 26, 2009, respectively.

Amortization expense of intangible assets for the next five years and thereafter is as follows (in millions):

NOTE 6: WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured. Our workers’ compensation insurance policies are renewed annually. We renewed our coverage with Chartis effective July 1, 2010 for the period July 2010 to July 2011. For all prior periods, we had coverage with Chartis and other insurance providers. However, we have full liability for all further payments on claims that originated between January 2001 and June 2003, without recourse to any third-party insurer as the result of a novation agreement we entered into with Kemper Insurance Company in December 2004.

Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Changes in the self-insurance reserve estimates are reflected in the income statement in the period when the changes in estimates are made.

Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At June 25, 2010, the weighted average rate was 3.7%. The claim payments are made over a weighted average period of approximately 6.0 years.

Our workers’ compensation reserves include estimated expenses related to claims above our deductible limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with the insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At June 25, 2010, the weighted average rate was 5.1%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over a weighted average period of approximately 18.5 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $25.9 million and $24.7 million as of June 25, 2010 and December 25, 2009, respectively.

Two of the workers’ compensation insurance companies (“Troubled Insurance Companies”) with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. These excess claims have been presented to the state guaranty funds of the states in which the claims originated. Certain of these excess claims have been rejected by the state guaranty funds due to statutory eligibility limitations. We have recorded a valuation allowance against the insurance receivable to reflect amounts that may not be realized. Our valuation allowance against receivables from Troubled Insurance Companies as of June 25, 2010 and December 25, 2009 is $7.3 million and $6.8 million, respectively.

Our total discounted workers’ compensation claims reserves were $187.0 million and $189.5 million as of June 25, 2010 and December 25, 2009, respectively. Workers’ compensation expense totaling $10.4 million and $6.8 million was recorded for the thirteen weeks ended June 25, 2010 and June 26, 2009, respectively. Workers’ compensation expense totaling $18.3 million and $15.7 million was recorded for the twenty-six weeks ended June 25, 2010 and June 26, 2009, respectively.

NOTE 7: COMMITMENTS AND CONTINGENCIES

Revolving credit facility

We have a credit agreement with Wells Fargo Capital Finance (fomerly known as Wells Fargo Foothill, LLC) and Bank of America, N.A. for a secured revolving credit facility of up to a maximum of $80 million (the “Revolving Credit Facility”). The Revolving Credit Facility expires in June 2012. As of June 25, 2010, the maximum $80 million was available under the Revolving Credit Facility and $13.7 million of letters of credit have been issued against the facility, leaving an unused portion of $66.3 million.

The Revolving Credit Facility requires that we maintain liquidity in excess of $30 million. The liquidity level is defined as the amount we are entitled to borrow under the Revolving Credit Facility plus the amount of cash and cash equivalents held in accounts subject to a control agreement benefiting the lenders. We are required to satisfy a fixed charge coverage ratio in the event that liquidity falls below $30 million. The amount we were entitled to borrow at June 25, 2010 was $66.3 million and the amount of cash and cash equivalents under control agreements was $142.8 million for a total of $209.1 million, which was in excess of our $30 million liquidity requirement. We are currently in compliance with all covenants related to the Revolving Credit Facility.

Obligations under the Revolving Credit Facility are secured by substantially all of our domestic personal property and our headquarters located in Tacoma, Washington.

Workers’ compensation commitments

Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of cash and cash-backed instruments, letters of credit, and/or surety bonds. The letters of credit bear fixed annual fees of 2.5%. Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier but do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days notice.

At June 25, 2010 and December 25, 2009 we had provided our insurance carriers and certain states with commitments in the form and amounts listed below (in millions):

Legal contingencies and developments

We are involved in various proceedings arising in the normal course of conducting business. We believe the amounts provided in our financial statements are adequate in consideration of the probable and estimable liabilities. The resolution of those proceedings is not expected to have a material effect on our results of operations or financial condition.

NOTE 8: STOCK-BASED COMPENSATION

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. Such awards include restricted stock awards, performance share units, stock options, and shares purchased under an employee stock purchase plan (“ESPP”).

Total stock-based compensation expense was (in millions):

Restricted stock and performance share units

Restricted stock is granted to officers and key employees and vests annually over periods ranging from three to four years. Restricted stock granted to our directors vests immediately. Restricted stock-based compensation expense is calculated based on the grant-date market value. We recognize compensation expense on a straight-line basis over the vesting period for the awards that are expected to vest.

In February 2010, the Compensation Committee awarded performance share units under the 2005 Long-term Equity Incentive Plan to certain executives. Vesting of the performance share units is contingent upon the Company’s achievement of revenue and profitability goals at the end of each three-year performance period. Compensation expense, based on the estimated performance payout, is recognized ratably over the performance period. Our estimate of the performance payout is reviewed and adjusted as appropriate each quarter.

Restricted stock and performance share units activity was (shares in thousands):

As of June 25, 2010, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $8.5 million, which is expected to be recognized over a weighted average period of 1.6 years through 2014. As of June 25, 2010, total unrecognized stock-based compensation expense related to performance share units was approximately $1.7 million of which $1.1 million is currently estimated to be recognized through 2013.

Stock options

We have stock option and incentive plans for directors, officers, and certain employees, which provide for nonqualified stock options and incentive stock options.

Stock option activity follows (shares in thousands):

A summary of the weighted average assumptions and results for options granted during the periods presented is as follows:

As of June 25, 2010, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $0.8 million, which is expected to be recognized over a weighted average period of 1.4 years through 2012.

Employee stock purchase plan

Under the 1996 Employee Stock Purchase Plan (“1996 ESPP”), 1.9 million shares of common stock have been reserved for purchase, of which 1.7 million shares have been purchased. During the twenty-six weeks ended June 25, 2010 and June 26, 2009, participants purchased 39,000 and 83,000 shares in the 1996 ESPP for cash proceeds of $0.4 million and $0.5 million, respectively. On May 12, 2010, our shareholders approved the 2010 Employee Stock Purchase Plan (“2010 ESPP”). Effective July 1, 2010, ESPP purchases will be made from the 1,000,000 shares reserved for purchase in the 2010 ESPP and no further purchases will be made pursuant to the 1996 ESPP.

NOTE 9: INCOME TAXES

The effective tax rate was 26.9% and 18.8% respectively, for the thirteen and twenty-six weeks ended June 25, 2010. During the quarter ended June 25, 2010, we recognized $1.3 million in tax benefit related to the favorable development of a prior period tax matter. The principal difference between the statutory federal income tax rate of 35% and our effective income tax rate, excluding the recognition of non-recurring benefits, results from state and foreign income taxes, federal tax credits, and certain non-deductible expenses. As of June 25, 2010 and December 25, 2009, we had unrecognized tax benefits of $2.0 million and $1.8 million, respectively.

NOTE 10: NET INCOME (LOSS) PER SHARE

Adjusted net income (loss) and diluted common shares were calculated as follows (in millions except per share amounts):

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of outstanding options and non-vested restricted stock except where their inclusion would be antidilutive.

Antidilutive shares associated with our stock options relate to those stock options with a grant price higher than the average market value of our stock during the periods presented. Antidilutive shares also include in-the-money options and unvested restricted stock for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented. For the twenty-six weeks ended June 26, 2009, we incurred a net loss of $1.6 million. A net loss causes all outstanding stock options and restricted share awards to be antidilutive (that is, the potential dilution would decrease the loss per share). As a result, the basic and dilutive losses per common share are the same for the twenty-six weeks ended June 26, 2009.